In order to prevent devaluation of the Turkish Lira, the Turkish administration has issued a presidential decree dated 12 September 2018 (the “Decree”) establishing restrictions on agreements denominated in foreign currencies or indexed to foreign currencies if such agreements are concluded between individuals and/or legal entities residing in Turkey.
According to the Decree, a Turkish resident who is a party to one of the following types of contracts with another Turkish resident is prohibited from using foreign currency (including Turkish Lira indexed to foreign currency) in determining the contractual value and payment obligations:

a) Contracts for the purchase and sale of any movable and immovable (i.e. real estate),
b) Contracts regarding rental of any movables and immovable assets including car rentals and financial leasing contracts,
c) Leasing contracts,
d) Employment contracts,
e) Service contracts,
f) Contracts of work.
More information and a link to the full newsletter may be found here.

In the last months the Turkish administration has published several communiques providing for certain exemptions to the Decree, since the restrictions haven’t been taken well by the foreign investors.
We provide in the below table a summary of the exceptions, according to which the parties may use foreign currency in their contracts:

a) Contracts for the purchase and sale  

• Sale contracts of movable properties (except for cars)
• Contracts regarding the sale of real estate that Turkish residents who are not Turkish citizen or executed by non-Turkish residents or by branches, representation offices, offices or liaison offices located in Turkey of persons residing outside of Turkey, or by subsidiaries located in Turkey in which a non-Turkish resident directly or indirectly holds a 50% or greater interest, or by companies located in free zones for their activities in free zones.
• Contracts regarding the sale or license of software which has been developed abroad.
• Contracts concerning the creation, export, purchase and sale of capital market instruments denominated in a foreign currency (including foreign capital market instruments and warehouse certificates and foreign investment funds)

b) Contracts regarding rental of movable and immovable assets

• Contracts regarding rental of real estate where one of the parties is not a Turkish citizen or entered into by non-Turkish residents or by branches, representation offices, offices or liaison offices located in Turkey of persons residing outside of Turkey, or by subsidiaries located in Turkey in which a non-Turkish resident directly or indirectly holds a 50% or greater interest, or by companies located in free zones for their activities in free zones.
• Management/rental contracts regarding tourism facilities certified by the Culture and Tourism Ministry
• Rental contracts in respect of duty free stores
• Rental contracts of movable properties except for rental cars

c) Financial leasing contracts regarding foreign currency borrowing

d) Employment Contracts:

• Employment contracts of Turkish residents who are not Turkish citizens
• Employment contracts between Turkish residents that are performed abroad and employment contracts of sailors
• Employment contracts entered into by non-Turkish residents or by branches, representation offices, offices or liaison offices located in Turkey of persons residing outside of Turkey, or by subsidiaries located in Turkey in which a non-Turkish resident directly or indirectly holds a 50% or greater interest, or by companies located in free zones for their activities in free zones.

e) Service contracts including brokerage and consultancy:

• Service contracts where one of the parties is not a Turkish citizen
• Service contracts in connection with export, transit trade, sales and deliveries deemed to be exports and FX earning services and activities
• Service contracts between Turkish residents that start in Turkey and end abroad, or start abroad and end in Turkey or which start abroad and end abroad
• Service contracts to be performed by Turkish residents within the scope of activities abroad
• Service contracts regarding software developed abroad
• Service contracts entered into by non-Turkish residents or by branches, representation offices, offices or liaison offices located in Turkey of persons residing outside of Turkey, or by subsidiaries located in Turkey in which a non-Turkish resident directly or indirectly holds a 50% or greater interest, or by companies located in free zones for their activities in free zones.

f) Contracts for Work:

• Payment obligations can be determined in a foreign currency or indexed to a foreign currency under contracts for work (i.e. construction) where the work involves costs in foreign currencies.

g) Contracts concluded with Public Institutions:

• Agreements entered into by public institutions and agreements entered into by the subsidiaries of the Turkish Armed Forces Foundation (except for agreements regarding sale, purchase and leasing of real estate.)
• Agreements made by and between builders and third party institutions for the performance of agreements and tenders of public institutions and international treaties denominated in or indexed to a foreign currency (except for agreements regarding the sale, purchase, and leasing of real estate and employment contracts)
• Agreements to which banks are parties in connection with transactions undertaken by the Ministry in accordance with the Law on Public Finance and Debt Management No. 4749.

Dr Gökce Uzar Schüller, Attorney
Frankfurt am Main and Istanbul  

Tugce Zeynep Tanin, Trainee
Frankfurt am Main